Web 2.0 meets the enterprise

Eager for fresh ideas, the stodgy world of enterprise software is adopting technology and marketing from the consumer Web.

Long set up like a gated community, the enterprise software industry is quickly gaining a populist streak.

New ideas in consumer technology are rapidly creeping into the design and marketing of software aimed at corporations. For example, Web 2.0 technologies such as blogs and AJAX are starting to show their potential behind corporate firewalls, analysts said.

Buttoned-down IBM, which mainly sells to businesses, on Wednesday detailed QEDwiki, for example. The project is meant to let people assemble Web applications using wikis, really simple syndication (RSS) and simple Web scripting.

Similarly, the grassroots direct-marketing techniques of the consumer world are starting to be used to tout enterprise software, analysts said.

The enterprise software market, once the hotbed of innovation, is starting to catch up to the consumer Web, where people are becoming used to melding data from their desktop with services online. It's a shift that could shake up the traditional enterprise-software model, experts predicted.

"Blogs and wikis are starting to move into businesses as a simpler and lightweight way to do collaboration," said Anne Thomas Manes, an analyst at the Burton Group.

"With all new and interesting applications in the consumer space, I'm sure someone is going to figure out how to take those concepts and use them in business," she added.

Corporate customers have distinct needs from consumers, but software companies, particularly smaller challengers, can employ consumer market tactics to take on large, entrenched rivals.

One opportunity lies in how software companies sell. Instead of using an expensive direct-sales force to target a central purchasing authority, some vendors are increasingly pitching to the person who will actually use the tool.

Antony Brydon Antony Brydon

Start-up Visible Path, for example, offers an entry-level version of its social-networking software to businesspeople for free. If enough people within the company use it, Visible Path has a much easier time selling the high-end version, which has advanced security and reporting, said Antony Brydon, CEO of Visible Path.

"A year ago, we'd have to walk into a company and say, 'You've never heard of social networks, you don't understand the value, but we're going to try to convince you to pay for it,'' Brydon said.

"Now we can say, 'Your salespeople are already using it. Let's show you where you can take it from here,'" he said.

Brydon argued that this approach is better, because the users have already voted with their feet. By contrast, a top-down purchasing process, led by the CIO and a handful of business executives, often results in "shelfware"--tools that people resisted or never used.

Hosted business applications are conducive to a "try before you buy" approach, particularly for midsize and small companies.

Rather than spend $100,000 for on-premise software, a business customer can quickly sign up for a hosted application, like one from Salesforce.com, and pay on a monthly basis.

Because companies don't have to make an initial investment, they don't get caught up in the multimonth sales cycle typical of enterprise software, experts said.

"Everybody is calling the enterprise software market dead. But it's really not dead. There are just new models at work."
--Joe Kraus, CEO of JotSpot

"You don't have to have expensive IT systems for common problems. It's self-service IT," said Dion Hinchcliffe, chief technology officer of consulting firm Sphere of Influence and author of the Enterprise Web 2.0 blog. "The actual vendors putting together the software have a lower barrier" to entering the market, too, he said.

Buyers can also rely more on word-of-mouth from users, who will get ahold of a program, test out its effectiveness and recommend it to managers. That "bottom-up" process is also typical of the world of open source, which relies on free goods to drive demand.

For software companies that target the corporate customer, abandoning the traditional enterprise sales model may be a matter of survival.

Speaking at the Software 2006 conference earlier this month, Ray Lane, former president of Oracle and now a venture capitalist at Kleiner Perkins Caufield & Byers, said that enterprise software companies need to retool their pricing models to compete against the largest providers.

"The entire software industry made one huge mistake in the late 1990s--it focused on buyers and not users," Lane said during a keynote speech.

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